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Forum Facts

Since I started this blog I have constantly been addressing wrong information, distortions, and outright lies that have been put out there to promote the dinar and dinar related products and services. It occurred to me recently that instead of just leaving my responses in separate posts I should put them all together in one page to make them easier to reference. Things that are accepted as fact in dinar forums when they’re not supported by the facts have come to be known as “forum facts”. Below is a list of these forum facts followed by the truth. Enjoy.

Shabibi said that Iraq is going to have the most valuable currency in the region/world/universe. Actually the word was “strongest” not “most valuable”. Here’s the quote from Shabibi.

“The strength of the Iraqi dinar strengthened the size of reserves of the Central Bank of foreign exchange of 60 billion dollars, this makes the Iraqi dinar and one of the strongest currencies in the region, so I do not see a positive to any fears of rising inflation due to falling sales of the central of the dollar, so that the bank has the possibility of being able to install large financial stability, and has more measures to increase stability in the rates of prices in foreign currency savings.” http://www.alesbuyia.com/inp/view.asp?ID=30096

“Iraq has not been plunged into poverty and starvation. According to the International Monetary Fund, it has the fastest growth rate in the Mideast. The Iraqi dinar is the strongest of the oil currencies.”

They’re saying that the dinar is now strong, so they can’t be referring to the value. What they mean by “strong” is that it’s backed 100% by Iraq’s foreign currency reserves unlike the currencies of their neighbors. Read my post on The Strongest Currency in the Region.

Owning the dinar is like owning stock in Iraq. As Iraq’s economy grows your stock will go up in value. The fact is growing economies like Iraq tend to have depreciating currencies. That’s why Shabibi is so concerned about inflation. Currency and stock are two different animals. The purpose of owning stock is to share in the profits and prosperity of the company that uses your investment dollars for operating capital. The purpose for money is completely different. It’s a means of exchange for goods and services. In the past many countries wanted a more valuable currency to give them greater purshasing power, but in recent years the trend toward globalization and the increase in exports has caused most to see a higher value as undesirable. Thus the currency war where countries like China have been accused of maintaining an artificially low value to gain a competitive advantage with exports. Read my post “Currency is Not Stock“.

Bush said the war in Iraq would pay for itself because he knew that there was a plan to revalue the dinar after the war. Bush never said that. He was president for eight years and there are transcripts, audios, and videos from every public appearance during that time and yet nobody has ever been able to produce any evidence that Bush said this. This was a claim made by Bush’s political opponents like Chris Matthews but it was baseless. The closest anybody has come to confirming this is that Wolfowitz and Rumsfeld made remarks about Iraq’s oil revenues helping to cover the cost of reconstruction which they are currently doing without “The RV” (start watching the video at about 92 minutes in).

Iraq announced that they removed 70% of the currency from circulation, so we know that they’re reducing the money supply. This is a reference to an article from 2010 that said

“The general director of the bank Abdul Hussein al-Yassiri told a news conference attended by the “morning” that the bank has achieved an important work focuses on two aspects, namely the withdrawal of excess liquidity from circulation, and then put into the market again, and managed to withdraw24 trillion and 800 billion dinars, representing 70 percent of the liquidity, referring to the The second aspect of the directions of the Bank is supporting projects its banking and industrial sectors, service and construction projects and the allocation of part of loans to farmers and the financing of housing projects, especially that the country needs to build more than three million housing units, noting that the bank allocated 6 trillion dinars for the purposes of housing, commerce and industry to by granting loans to the public sector as the Ministry of Electricity had granted a loan for the development of electricity and purchases of bonds and remittances in the form of two waves exceeded purchases totaling four trillion and 800 billion dinars, as well as giving companies and the Ministry of Industry more than a trillion and 115 billion dinars, a contribution to the implementation of rehabilitation projects and the development of these companies , in addition to various loans granted by the Bank staff and employees in different state. Speaking of housing loans granted by Iraq to the citizens of that the bank used Balakari as an owner of an experiment in granting housing loans to citizens Vakarz final amount exceeded 300 billion dinars, in addition to the prepared study how to grant housing loans by him directly, because the bank wanted to avoid the mistakes of the many international banks through the equation between the deposits and the type and between loans and advances, indicating the presence of short-term deposits and long-term and there are loans and short-, medium-and long-term bank, which has the right vision for the future must be prepared to this budget and gnawing on that basis, he put it.” http://dinarvets.com/forums/index.php?/topic/19699-iraq-announces-the-withdrawal-of-70-percent-of-the-excess-liquidity/#ixzz1zvSz2x6R

At first glance this looks promising, until you look up the definition of “excess liquidity”. Qfinance defines it as “cash held by a bank above what is required by the regulatory authorities“. This has nothing to do with reducing the money supply or pulling in the larger denominations. It’s talking about taking money out of the banks and moving it into the economy. As you read further in the article you’ll see that’s exactly what they’re talking about. They were using those funds for industry, banking, housing …. etc. The money supply in Iraq isn’t shrinking. It’s growing. And the financials on the CBI website clearly show that.

The money supply figures from the CBI are bogus because if the money supply is really growing then why isn’t the dinar’s value going down? Very simple. They’re backing the dinar with their foreign currency reserves. As their reserves grow they can either raise the value or print more currency to maintain equilibrium and stability with their exchange rate. Contrary to what pumpers and gurus tell you, most countries don’t want their currency’s value to go up. In Iraq’s case they apparently have opted to print more money and keep the rate where it is. See my post “Dirty Float“.

Iraq is focused on raising the value of their currency but Maliki/China/Obama/The Kurds/The Powers that Be/Whoever is the holdup. Think about it. If Iraq could revalue their currency and magically transform their country into a mirror image of Kuwait at the flip of a switch don’t you think they would have resolved these issues holding up the RV by now? The fact is there is no holdup because Iraq doesn’t want to raise the dinar’s value unless they have to in order to bring the inflation rate down. The CBI’s policy has been a stable dinar since shortly after they introduced the IQD. They went from a policy of stability to a crawling peg for a couple of years in order to get inflation under 10%, and since January of 2009 the value has only increased 1/3 of 1%.

The dinar was devalued when we invaded Iraq and now they’re going to return it to its former value. Actually the CBI website tells you the history and it states very clearly that the exchange rate was 3000:1 in 1995, eight years before we invaded. It depreciated due to Saddam’s reckless policies, sanctions, and overprinting which caused hyperinflation. It was not devalued by coalition authorities. I think this belief may have started because of the Hugh Tant interview where he said that the dinar had been devalued, but it’s obvious from the context that he was talking about depreciation through the years and not a policy by Coalition authorities to devalue it.

Q: How strong were the state banks’ ties to the regime?

TANT: I imagine they were very strongly tied to the regime. They were at the beck and

call of Saddam and did anything the regime demanded. They had to. As a result of that,
the currency was just devalued in an enormous way.

People made millions of dollars off the Kuwaiti RV and the Iraq RV will be just the same. Kuwait didn’t revalue their currency. They introduced a new currency at the same official exchange rate. What changed was the street value or black market value during Saddam’s occupation of Kuwait. Once Saddam was removed the old Kuwaiti dinar was replaced with a new one because Saddam’s forces had taken so much of the old Kuwaiti dinar along with their printing plates. The only people who made money off the Kuwaiti dinar in 1991 were money dealers or bankers in that region who only gave fleeing Kuwaitis pennies on the dollar so to speak for their currency. For an American soldier or contractor to have made a million dollars they would have had to have tens of thousands of dollars in cash on them and used that to buy Kuwaiti dinar while Kuwait was under occupation by Iraq. I have a feeling most of those guys were more concerned about staying alive than conducting any currency speculation at the time.

The Feasibility Study from the Ministry of Planning said that the official value of the dinar is $3.21 but they need to RV around $1.13 and grow into the $3.21 value. I wrote about this in MOP Report. This is an old report from the Saddam era and has nothing to do with the IQD. The Ministry of Planning home page says it’s from 1984 and was amended in 1990, before hyperinflation took the value down from the $3+ range. If you click on where it says The Exchange Rate of Foreign Currency in Economic Feasibility Studies you’ll find the heralded Feasibility Study with the irrelevant exchange rate. As one of my readers named Brian pointed out this is like anticipating an RV of the US dollar based on a report from the cold war era.

“Deleting three zeros” is referring to removing the notes with three zeros from circulation and the meaning is lost when translated into English. “Deleting zeros” means a redenomination where zeros are removed from the nominal or “named” value. In Iraq’s case that is $.00086. Economists have used this expression for decades when discussing redenominations. Sometimes they say “cut the zeros” or “remove the zeros” but it means the same thing. When Shabibi was in Washington DC last year he spoke in English about deleting the zeros and he mentioned nothing about removing larger notes from circulation. In fact he even used the word “redenomination”. No room for getting lost in translation there.

The most you’re risking when you buy dinar is 20% and you could potentially make millions. The risk is 100%, not 20%. As long as the rate is where it is and things are stabilizing in Iraq you can sell dinar to a dealer or another speculator on ebay, but things could change in a flash. War could break out. The PM could be assassinated. An earthquake, a coup, hyperinflation …. etc. Any number of things could happen to drive down the value of the dinar. And once the redenomination begins there’s no guarantee that you will be able to sell your dinar at any price. As for the upside, the largest revaluation in history was China’s at about 30%. You see, currencies don’t move like stocks. Sometimes stocks will double in value in a year’s time. For a currency to revalue at 15% is huge. Most revaluations are simple adjustments of 2-5%. If the Iraqi dinar revalues to 86 cents that would be a 100,000% increase. Seems a tad unlikely now, huh? Especially with 30 trillion dinar in circulation, which would take their monetary base from about $26 billion to $26 trillion. And as I’ve already pointed out, they’re not reducing the money supply so you can’t fall back on that. In all likelihood the most you could make on the dinar is a minimal return. A 30% revaluation minus exchange fees would hardly justify the risk incurred in buying dinar.

Shabibi has said he’s going to revalue the dinar. Actually what Shabibi has said is that they’re going to redenominate or remove the zeros. When that happens the value of their currency will be raised, but only because their currency will be replaced by a more valuable currency. The IQD that investors hold will not increase in value in a redenomination. It will be exchanged for the new currency at a ratio of 1000 old for 1 new dinar. There have been times when statements coming out of Iraq have used the word “revalue” but if you’ll read the context you’ll see that they’re describing the process of redenomination, not revaluation. Revaluation is a simple adjustment to the exchange rate. It requires no new currency printing and no education process for the public. Redenomination requires approval from parliament to print new currency. The exchange rate will go from 1166:1 to 1.16:1 and the value will go from $.00086 to $.86. The old currency will eventually be demonetized (declared worthless) and nobody will make any money off of the process.

The current rate of 1166 dinar to the dollar is the artificial program rate. Actually the rate is quite real. The CBI adjusted the rate several times from 2006-2009 to rein in inflation. Then they adjusted it again in January of 2012. If the rate was artificial then why would they need to adjust it? If you take the total that Iraq has in their foreign currency reserves (about $60 billion) which they are using to back the dinar and divide it by the total of dinar that they have to support in their M2 (about 70 trillion) you will arrive at about $.00086 which is the current value of the dinar. The IMF monitors what the CBI is doing and their credibility is at stake here. Would they jeapordize their credibility by looking the other way while Iraq cooks the books to inflate their money supply by 90% or more which would be required to RV to 86 cents? Not bloody likely IMO. In fact the IMF said that the dinar is not significantly under-valued.

Bush, Cheney, and the Federal Reserve came up with this plan to RV the dinar to reboot the world’s economy and generate a windfall in the trillions for the US. Sounds good, but there’s zero evidence of this. As I stated before there’s no evidence that Bush said the war would pay for itself. Sometimes people quote Obama as saying that the debt would be paid off in three years (meaning by the end of his first term) because he supposedly knows about the RV too. Well nobody has yet produced evidence that Obama ever said that, either. He did talk about bringing down the deficit (which is different from the debt) but that’s only in reference to bringing it down from the astronomical levels that he increased it to. And the indictment of Brad Huebner and Rudy Coenen states that they defrauded investors by saying that the US Treasury holds trillions of dinar which they will use to pay down the national debt after the RV, a charge that Rudy has already pled guilty to. (see page 5 of the indictment)

We weren’t supposed to know about this plan. So why do we? With trillions of dollars at stake you’d think they’d be a little more hush hush, wouldn’t you? Isn’t it more likely that the plan was created by people selling dinar?

Countries only lop when they have hyperinflation. That’s not the case in Iraq. Actually countries usually wait until hyperinflation has subsided to RD or lop, because if they do it while hyperinflation is ongoing the chances of succeeding are slim. Turkey, for example, had about 8% inflation when they lopped in 2005.

Iraq is the wealthiest country in the world. Iraq’s GDP is ranked 58th in the world, behind Algeria and Nigeria. They have, however, surpassed Angola and Bangladesh, so at least they’re improving. Their per capita income is 128th, behind Armenia and Mongolia for God’s sake. Sure, they’ve got a lot of oil, but that doesn’t make a country rich. Wealthy countries have diversified economies with educated people and a well developed infrastructure. Those things will take time in Iraq. Decades, in fact. Maybe in fifty years Iraq will resemble their Kuwaiti neighbors but it’s not gonna happen any time soon.

The SIGIR Report said that Iraq is going to revalue to just below the dollar. Actually the report said:

“In April 2012, the CoM postponed indefinitely plans for a currency reform that would have removed three zeros from the Iraqi dinar in 2013 and required the issuance of new currency notes. The reform would have made the dinar’s value slightly less than $1. It is currently worth less than one-tenth of a cent.”

The word “revalue” isn’t used. It says “currency reform” which is referring to what the CBI has been proposing for two years now. They want to remove three zeros from the exchange rate, issue a new currency at a ratio of 1000 old to 1 new dinar, and eventually demonetize the old dinar. That’s a lop. The new value would be 86 cents, or just a little under a dollar.

Inflation is our friend. High inflation in Iraq will trigger the RV. There is some truth to this one, because Shabibi said when he was in DC last year (2011) that if inflation gets too high they will consider changing the exchange rate to bring it back down. They did this several times from 2006-2009, but nobody got rich off of those adjustments. We’re talking 1% – 5% here, not 100,000% up to 86 cents.